Last year ended with a positive sign from small employers. In December, the SurePayroll Scorecard hiring index climbed 15 points to 10,442. "It's one of the few up months we had all year, and that's real movement," says Michael Alter, president of the Glenview, Illinois, payroll service that compiles data for the index from its small-business customers. "That, to me, was a very encouraging sign."

For the past two years, however, small-business employment has been flat, with 2006 showing a 0.2 percent decline from 2005, and 2005 up just 0.3 percent from 2004. Salaries, meanwhile, leveled off in December after increasing strongly throughout the year. The SurePayroll Pay Index ended at 1,018, unchanged from November but up 7.4 percent for the year. The average salary hit $31,292.

Though a strong pay hike on top of flat employment growth may sound ominous, Alter notes that the recent hiring lull follows a strong 4.4 percent rise in 2004. And 2006's soaring salaries follow sharp drops in 2004 and a smaller decline in 2005. "If you look at it over two years, you see more hiring since 2004, but [no] dramatic changes in salaries," he says. In fact, salaries today are close to where they were when 2004 began.

One distinct trend emerged in hiring subcontractors. The SurePayroll Contractor Index increased a robust 4.6 percent for the year. "That is another positive sign that people are starting to look at growing small businesses again," says Alter. If interest rates and costs for energy, materials and health care fall or remain relatively stable, he believes small business may soon return to hiring permanent employees somewhat more actively, adding, "We're cautiously optimistic about 2007."